Selling To Audit Committees

To develop opportunities CPAs need to find out exactly what services a committee needs.


SARBANES-OXLEY HAS CHANGED the relationships CPAs have with the entities that employ them. Before, an audit committee was essentially an extension of a company’s board of directors, often rubber-stamping the CFO or CEO’s choice of auditor. Since the act, corporate boards and audit committees have taken on much of that decision-making role. Increasingly, they decide which audit firms to hire for which services.

AUDITORS HAVE THREE TARGET MARKET SEGMENTS: publicly held companies, large private and public-interest entities (such as banks, nonprofits), and smaller private and public-interest entities. For public companies, regulatory compliance dictates the role of audit committees.

THE KEY TO DEVELOPING BUSINESS OPPORTUNITIES in the new environment is for CPAs to nurture stronger relationships with members of the audit committee and board of directors. To learn which service opportunities involve a committee and which don’t, firms need to communicate with the audit committee.

CPAs NEED TO ASK EACH POTENTIAL decision maker how active a given audit committee will be in the engagement in question and which audit committee members have the most influence.

THE SCOPE OF AN ENGAGEMENT OPPORTUNITY likely will be shaped by what audit committee members or in-house counsel interpret as a conflicted service. A firm needs to get answers from them long before preparing an oral presentation.

CPAs SHOULDN’T WAIT FOR THIS MARKET to come to them but should anticipate its needs and how to fulfill them. To focus on innovation, partners can identify new services or new features of current services that might appeal to clients and prospective clients. Use group discussions with key clients to shape new offerings.

GALE CROSLEY, CPA, is founder and principal of Crosley and Co., an Atlanta-based firm that provides growth consulting and coaching to CPA firms. She has more than 30 years of experience in two national accounting firms and with companies such as IBM and MCI. Her e-mail is gcrosley@crosleycompany .

efore the Sarbanes-Oxley Act of 2002, an audit committee was essentially an extension of a company’s board of directors, often rubber-stamping the CFO or CEO’s choice of auditor. The chosen auditor usually also performed many or all of the other CPA-related services the company required. Since the act, corporate boards and audit committees have taken on much of the decision making over which audit firms to hire for which services within the confines of the law. In this environment of heightened ethical and legal constraints, CPA rainmakers and business development professionals are not always sure how to approach audit committees to pursue engagement opportunities—and building an alliance with a committee is not an easy task.

However, CPA firms can take heart. Here are suggestions to help practitioners approach and win over boards in each of three target markets for auditing services: publicly held companies; large private and public-interest entities (such as banks, nonprofits); and smaller private and public-interest entities that believe voluntary compliance may bring an increased measure of fiduciary responsibility to their operations.

The new Sarbanes-Oxley regulations prohibit auditors from performing tax provision or goodwill impairment calculations, bookkeeping, designing information systems or providing internal audit services. Many audit committees take things a step further, “conflicting out” the auditor for services not on the list. Technically the committee is not required to choose a provider in such cases, though it has latitude to do so.

Internal Audit Reaches Out
Has your company hired outside providers to complete significant portions of 2004 Sarbanes-Oxley compliance requirements?

Source: PricewaterhouseCoopers IA Alert Internet Survey of 441 companies, 2004.

The key to obtaining engagements in the new environment is for CPAs “to develop stronger relationships with members of the audit committee and board of directors,” says Trent Gazzaway, CPA, national director of corporate governance for Chicago-based Grant Thornton. “Selling is all about relationships.” Before building a relationship a CPA has to learn which service opportunities involve a committee and which don’t, so firms need to communicate with the audit committee.

The new restrictions have led to unanticipated consequences and impediments, however. For example:

Different decision makers are involved in the selection of providers of different CPA services—tax services vs. internal audit, for instance. The audit committee must choose the auditor—and the internal auditor—but not all decisions will involve the audit committee.

Audit committee members, CEOs and CFOs still aren’t sure what role the committee should play in selecting a CPA services provider.

Because audit committee members may work in different cities and for different companies, it’s more difficult for CPAs to develop relationships with them than if they were down the hall from the CEO and CFO.

For auditors, there are three market segments: publicly held companies, large private and public-interest entities, and smaller private and public-interest entities. Regulatory compliance dictates the audit committee role for public companies, but at large private and public-interest entities, audit committees are optional—useful not for compliance but to seek a higher standard. The third market, smaller private and public-interest entities, may lack resources to determine where its compliance duties lie but perceive potential benefit from an increased and documented level of integrity.

Publicly held companies. One of the prime tasks for CPAs developing opportunities has always been to figure out which executive holds decision-making power. Often you could gaze at an organization chart—a road map to boss/subordinate/peer relationships—and identify likely key people and who you needed to get to know. Alas, audit committees don’t post road maps.

One of your first tasks, then, is to ask each potential decision maker how active a given audit committee will be in the engagement in question and which committee members have the most influence. Don’t assume anything . Don’t assume you know the dynamic of the organization. If a business opportunity is for tax services, don’t assume the audit committee won’t be involved because the work is not an audit. Don’t assume you know what is or isn’t considered a conflicted service.

The scope of your opportunity likely will be shaped by what audit committee members or in-house counsel interprets as a conflicted service, so you have to get answers from them long before you prepare a presentation. For example, one firm decided that to properly pursue a tax services opportunity it needed to know whether the audit committee would help select the provider and which specific tax services the committee considered a conflict—state and local, international, tax provision? The answer shaped the services the firm proposed and helped identify the decision makers to talk to.

Gary Shamis, managing partner for SS&G Financial Services of Cleveland, says, “We do ancillary audit work for more than 40 public companies—mainly tax compliance and provisions, 401(k) audits, 404 internal audit, for example. Several times in the past year we were asked to meet with an audit committee to present qualifications, which had never happened before.”

Unfortunately, in many cases audit committee members and a potential provider meet only when it’s time for the oral presentation. It’s almost impossible to differentiate your firm in a one-hour meeting when other equally qualified providers precede and follow you.

To elicit essential information in advance, you need to

Use an “opportunity assessment” questionnaire. Once you hear about an opportunity, develop a list of questions to use on initial calls to key executives. Your first objective is to get data. Ask who the entity’s decision makers are; what the decision-making process is; who the competitors and incumbents are; and what their professional and personal objectives are. Ask specific questions about the role of the audit committee and the responsibilities of its individual members.

Approach the opportunity as a team, dividing up the task of talking to the potential client’s various decision-makers. Your team’s mission is to uncover hidden buyer needs, which calls for developing one-to-one relationships with management and with audit committee members. Doing this successfully requires interpersonal and listening skills. Your firm’s best relationship developer may not be its most technically qualified person, so select the most appropriate firm member to get a relationship under way.

Plan a program of purposeful calls, and schedule fact-finding conversations with key decision makers rather than proposal-writing marathons.

Recalibrate your approach as you gain more information about the entity, sifting through information to home in on who the client’s real decision makers are.

Public company gatekeepers. Getting through to audit committee members, in-house counsel and other decision makers whom you have not traditionally called upon is not easy. You may have to elicit the help of the CEO and CFO to create access for you. Certainly if top brass erects a fire wall between you and a committee, your chance of success is limited. Persuade them it’s in the company’s best interest for you to understand the organization’s requirements from the perspective of the audit committee, whose members will articulate needs that differ from those of operational management. Let the CEO and CFO know it will help all parties if you get committee input long before making a presentation.

Gatekeepers may respond to the following approaches:

“My boss, your boss.” Suggest it is in the mutual interest of the firm and client for your managing partner to meet the head of an audit committee to discuss their company’s objectives, approach and commitment of appropriate resources.

Mitigation of risk. An audit committee role is a part-time fiduciary responsibility with huge accountability, and risk is reduced when the entity and the auditor are on the same page. Talk about risk assessment to ensure a good match for your firm.

Make it easy. If key audit committee members are unavailable to meet in person, request phone interviews with them. If you can’t get access to all committee members, ask to interview the one who best represents the key needs of the group. You’ll have a familiar face—and a possible advocate—during the final days of the oral presentation and decision making.

Use your rainmaker. If you have a senior business development professional in your firm, involve him or her in solving the problem of reaching audit committee members.

The new due diligence. Inform the potential client that the regulatory environment has changed your firm’s approach to engagement due diligence; you now interview audit committee members as a basic part of your opportunity development process. Let the client know this is how your firm discovers needs and assesses risk, in addition to viewing prior year financial statements, talking to operational management and other procedures.

Large private companies. If yours is a midsize CPA firm with no publicly held clients, apply your knowledge of new public-company internal control requirements to your nonissuer clients. Some private companies may want to adhere to those stricter regulations, albeit on a lesser scale. They may wish an internal controls assessment or to enhance their internal controls capability. Another possible role for your firm might be to keep the audit committee, board and owners apprised of regulatory changes and their future applicability. “Create your own role. Consider holding a seminar or writing relevant articles,” says Shamis.

AICPA Audit Committee Effectiveness Center, .

AICPA Audit Committee Toolkit, or AICPA product # 991001JA.

For more information about these resources, go to or call the AICPA at 888-777-7077.

Another strategy is to identify your top five clients and request a meeting with the CFO, the CEO, key board members and the audit committee of each to discuss the changed environment. Suggest that you take on the role of information and education resource, serving as a trusted team member who can identify sensitivities in the organization regarding internal controls and governance. The meetings might reveal a need for a one-day fraud or internal control assessment seminar, a half-day workshop with board members or a board roundtable led by your firm.

Down-market and not-for-profit opportunities. Smaller companies and public-interest entities that are not bound by regulatory changes still can benefit from best practices inspired by them. The court of public opinion, more than the SEC and IRS, is their constituency. You can help them assess the environment and draw conclusions about the relevance of the changes to their organizations. Rather than sell to the audit committee, offer to develop and deliver services that are commensurate with their goals and budgets and that strengthen their fiduciary integrity.

“Nonprofit boards have a heightened awareness of their responsibilities as a result of Sarbanes-Oxley and some GAO changes,” says Shamis. “Nonprofits want to become as transparent as they possibly can and to comply at a higher level” than in the pre-Sarbanes-Oxley era. He calls audit committee relationships a “hot topic” in this stratum of the market.

Cindy Ethridge, CPA, head of the audit department at Gifford, Hillegass and Ingwersen, a CPA firm in Atlanta, Georgia, says, “Previously in many nonpublic companies and nonprofits, interaction between the auditor and the board was limited if it existed at all. Now, between SAS 99 and Sarbanes-Oxley, it’s mandated.” The increased contact gives the auditor an opportunity to collaborate with an organization to set and meet its goals and to highlight an audit’s value beyond historical numbers.

“In addition, many board members are on other boards or network with others in the community. Discussions with key board and audit committee members during the audit process followed by an effective audit wrap-up presentation can result in referrals,” says Ethridge.

Don’t wait for this market to come to you. Anticipate its needs and devise ways to fulfill them. Strengthen your partners’ sense of ownership of the firm’s services. Ask partners to identify new services or new features of current services that might appeal to clients and prospective clients. Focus on innovation and market relevance. Schedule group discussions with key clients (informal or formal focus groups) to explore how your services meet their needs in today’s environment; use this input to shape new offerings.

Communicate with the CFO, the CEO and key board and audit committee members of top clients to discuss what the changes in the regulatory environment mean to them and to the services you offer.

Learn which of an entity’s service opportunities involve the committee.

Pursue an opportunity as a team, dividing up tasks and calling on key decision makers to determine the interests of operational management and audit committee members.

Make well-planned, purposeful calls to prospects before you home in on a proposal and final oral presentation.

Let operational management know that interviews with audit committee members are a standard part of your firm’s process for assessing risk and understanding how a company’s needs and your firm’s abilities match.

Address the needs of both operational management and audit committee members.

Sarbanes-Oxley has irrevocably changed the landscape for CPA firms. The environment has shifted from one in which audit committees passively delivered their “blessings” to one in which they select and approve auditors. This change, from review and signoff to active oversight and control, can spell opportunity for firms ready to embrace change, to respond with a broader set of solutions and to rigorously address issues such as adequacy of controls, fraud risk and appropriate governance.

Selling at the audit committee level is, without question, more complex than it was in the past. The dynamics of interpersonal influence, the logistics of the relationships, new decision-making processes and a broader potential role for savvy firms are the current realities. New business opportunities are there—you just may have to work a little harder and smarter to identify them.

What a Governance Referee Thinks

R obert Roath, CPA and former CFO of RJR Nabisco, is an independent board member and chairman of audit committees for two distinctly different businesses. Interdigital Communication Corp. is a high-tech Nasdaq telecommunications company with $1 billion in market capitalization, and Standard Parking is a Nasdaq service-based company with about $165 million in market capitalization. The former designs and provides advanced wireless technologies; the latter is a cash business providing management for facilities in hundreds of U.S. cities.

Roath says the rules for obtaining CPA services are evolving as companies implement Sarbanes-Oxley. “It’s causing some confusion,” he says, “but it will get easier as the rules settle down and there is experience to build upon.” Under the new regulations the committees Roath sits on have shifted some CPA services away from their traditional accounting firm. “Our staff have excellent public backgrounds, but it’s very difficult to stay current on all aspects of accounting and reporting,” he says. One firm helps sort out the nuances of accounting rules and regulations and general compliance, and another helps with IT compliance reviews.

To augment the internal staff, the Interdigital audit committee chose Grant Thornton to assist in the review and documentation of internal accounting controls. The committee asked the firm to bid based on its general reputation and prior working relationships. All the independent directors sat on the committee.

Standard Parking is newly public, having completed a successful IPO last May. The company has a strong control orientation and has embraced the new rules for compliance. “Quite possibly they will be able to do this without additional outside resources. It’s a myth that a small company cannot deal with these laws,” says Roath, referring to the idea that Sarbanes-Oxley will inhibit small private companies from going public. “Standard was on top of the controls situation and has had no problem.”

As an audit committee director, Roath says what he looks for in terms of services is pretty simple: “We all know what has to be done in general. The challenge is in the detail. We’re willing to listen to proposals about areas where we need help. Firms seeking business should make sure they ask what services the entity wants or needs.” Roath notes that one important area of potential opportunity development for CPA firms is board and audit committee member training and education.

The best thing about Sarbanes-Oxley, he says, is that it’s “requiring companies to do the things they should have been doing all along.” But the way the changes are being implemented by auditors is overly burdensome, which may stem from the newness and uncertainty as well as auditors’ concerns about potential litigation. “My concern is that regulators will decide that if some is good, more is better,” he says, “and that lawyers will see this as a growth opportunity and launch a new wave of lawsuits.”

Another concern, of course, is the cost of complying with Sarbanes-Oxley. “I’m hoping regulators will develop a reasonable approach and companies will increase productivity,” he says. “I’m not all that optimistic.” Still, he notes that Sarbanes-Oxley for the most part reiterates rules that have always been part of the process. “I like to focus on key performance indicators and free cash flow over time. Less is more and works every time—it lets you see the forest instead of the trees.”

—Michael Hayes

Michael Hayes is a senior editor on the Journal of Accountancy.

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